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Impact of the COVID-19 Pandemic on the Travel Industry

Impact of the COVID-19 Pandemic on the Travel Industry

Corrado Macchiarelli

15 years: Macroeconomist

In this video, Corrado explains how the COVID-19 pandemic has impacted the travel industry. He outlines what vaccine distribution on a global scale can do to mitigate its effects and the challenges that Lower Middle Income Countries (LMCIs) face in their efforts to vaccinate their populations. Two scenarios outlining the economic impact of lifting and maintaining travel restrictions are also outlined in this video. 

In this video, Corrado explains how the COVID-19 pandemic has impacted the travel industry. He outlines what vaccine distribution on a global scale can do to mitigate its effects and the challenges that Lower Middle Income Countries (LMCIs) face in their efforts to vaccinate their populations. Two scenarios outlining the economic impact of lifting and maintaining travel restrictions are also outlined in this video. 

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Impact of the COVID-19 Pandemic on the Travel Industry

13 mins 55 secs

Overview

One of the primary public interventions that have been deployed to contain the virus is restrictions on mobility, both within and across countries. Of the different sectors affected by Covid-19, tourism has suffered most acutely from the crisis, travel and tourism had become one of the most important sectors of the world economy, accounting for 10% of global GDP, and over 320 million jobs worldwide prior to the pandemic. The collapse of international tourism is part of a larger drop in global trade in services, mainly curbed by low consumer confidence and travel restrictions.

Key learning objectives:

  • Understand the impact of the pandemic on the travel industry

  • Understand what vaccine distribution on a global scale can do to mitigate its effects

  • Outline the challenges for the industry going forward

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Summary

How has the pandemic impacted the travel industry?

  • Travel restrictions - According to the UNWTO Travel Restrictions report, 217 nations have imposed some kind of travel restrictions since March 2020
  • Commercial flights - According to Flightradar24 Flight tracking statistics, commercial flights decreased by 41.7 % compared to 2019
  • Hotel occupancy - The travel limitations have also had an impact on hotel occupancy rates. According to STR Data Insights, hotel rates have decreased in all regions since March 2020
  • Industry profits - According to the International Air Transport Association, passenger revenue for airline companies in 2020 is estimated to have plunged by about -$118.5 billion worldwide from 2019 levels
  • Jobs - Because of its broader economic implications, the tourism industry may be among the last to recover, with impacts that extend beyond the industry itself

Under what conditions will world travel go back to pre-pandemic levels?

  • The vaccine will have to become available on a wider scale, including in low and lower-middle-income countries
  • Countries need to ease restrictions on international mobility
  • Consumer confidence must return

What can vaccine distribution on a global scale do to mitigate its effects?

Data collected by researchers at Duke University’s Global Health Innovation Centre and Bloomberg show indeed that the vaccine rollout is very unevenly spread across countries, with some countries such as Israel, the US and the UK having advanced considerably in vaccinating their population. Domestic vaccine production capacity provides a significant benefit in ensuring an adequate supply, especially as some countries try to ban vaccine exports.

Countries with manufacturing capacity, such as India and Brazil, have been successful in negotiating large advance market commitments with  leading vaccine candidates as part of the manufacturing agreements. The main international effort to distribute vaccine supplies in a transparent and coordinated manner remains indeed COVAX. This represents a multilateral initiative created in September 2020, spearheaded by Gavi (a Geneva-based funder of vaccines for low-income countries), the Coalition for Epidemic Preparedness Innovations (CEPI) and the World Health Organisation. It is aimed at ensuring that all countries have ‘fair and equitable access’ to the Covid-19 vaccine.

The COVAX initiative has been supported by high-income countries, as well as by China. The aim is to secure 2 billion vaccine doses, half of which are for LMICS, which encompass half the world’s population. The number of doses procured by COVAX appears nevertheless modest when compared to higher-income countries.

What are the challenges for the industry going forward?

Forecasting the impact of the pandemic on tourism is then quite challenging – particularly since the rapidly changing health conditions and ensuing containment strategies across the globe. According to United Nation World Tourism Organisation’s scenarios for 2021-2024, a rebound in international tourism is expected by the second half of 2021, with domestic tourism recovering more rapidly than international, partly due to inbound restrictions.

Data has been collected from a few potential scenarios of the interaction between vaccine distribution and reopening of international tourism during the latest forecast of the National Institute of Economic and Social Research in 2021. One scenario which models a failure to deliver a vaccine to lower income countries that prevents a widespread opening of the global economy before 2022. In this scenario, roughly 25 percent of international travel is projected to remain indeed restricted at the end of 2022, global services trade remains depressed and world trade is projected to decline by 1.2 per cent this year relative to the baseline and 0.8 per cent in 2022. GDP growth is further expected to be weaker in all countries, especially in countries that have not secured access to sufficient doses of vaccine.

NISER suggests that world trade this year would have been about 2.75 per cent higher than currently expected. Economic growth would have been higher in all major countries and regions. This means that if the challenge involved in developing and administering an effective vaccine, particularly in LMICs, were to be greater than expected, this would prolong the period in which containment measures were required to limit Covid-19 outbreaks across the globe, with weaker confidence and increased uncertainty as a result.

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Corrado Macchiarelli

Corrado Macchiarelli

Dr. Corrado Macchiarelli is the global macroeconomics research manager in the macroeconomic modeling and forecasting team at NIESR (National Institute of Economic and Social Research). He is also the managing editor of the National Institute Economic Review (Cambridge University Press).

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